Lee AdlerThe market is at a critical inflection point as the S&P 500 completed a top by closing below 6700 last week. A morning rally has rebounded to trend channel lines. While some short-term indicators suggest a potential low forming by xxxx xxxx, the broader cycle data—including a strong sell signal on the Cycle Wave Composite—points toward an increasingly bearish long-term outlook.
I believe that the behavior of the list in the last couple of weeks indicates a market undergoing major transition, where cyclical factors appear conducive to supporting external shock. But so far, this view has not manifest in the stock screens of most listed, actively traded stocks.
The cycle structures have become clouded, as the price of gold is whipped about on rapid-fire geopolitical developments. The structures now argue for a trading range until there are clear indications that the 9-12 month cycle has entered a down phase, due to begin in April.
I set numerous sell orders for last Monday’s open, with most of those taking sharp losses. Small consolation that it would have been worse had I not done that. And the picks I left in place—energy longs and a short, did ok while 2 new picks on the short side treaded water.
The market is positioned to open below a significant top pattern, with technical indicators and cycle analysis suggesting an increasingly likely down phase and major trend weakness.
The federal budget deficit continues to expand as government outlays outpace revenue gains. Withholding tax collections grew strongly, belying the BLS nonfarm payrolls data for February. The tax data indicates a stable employment trend.
The Fed is doing just enough. Repo growth has flattened, leverage may be unwinding, and long term liquidity/sentiment measures remain historically extended. Yet nothing has broken. The bull is on life support, and the next 60 days will tell us whether the seasonal liquidity tailwind buys it another leg or the exits start getting crowded.
Cycle based screening methodology struggles with rangebound markets where wave frequencies go hyper, amplitudes are large, and/or the market is whipped around by news. The idea is to survive those periods, and then be well positioned for the next sustained trend. We’re in survival mode now. The list has been mostly minimally positive during this rangebound period, but the meatgrinder effect finally appeared last week. The market chewed us up and spit us out.
The S&P 500 is currently testing key support levels within a short-term downtrend channel following the US attack on Iran over the weekend. While short-term cycles suggest a possible bottom, long-term momentum is weakening, placing the market in a high-risk window. We need wait and see for one or two sessions, to estimate whether this action deflects the market to a lower trajectory, or merely creates temporary distortion.
Gold’s 13-week cycle lower wave band rises to xxxx over the next week. Short cycle projections have risen to xxxx but there’s no 13-week cycle projection yet.
The list currently has an average gain 2.7% on an average holding period of 17 calendar days, including open picks and those closed out last week. 6 new picks will be added this week and 5 will be closed.
Short-term indicators suggest a potential minor rally toward April. However, this strength is expected to be temporary as the broader trend faces exhaustion and long-term cycles enter a high-risk phase.
Here are the support and resistance levels, cycle projections, and indicators to watch to determine the direction of the next big move.